LensCrafters 2012 Annual Report Download - page 208

ANNUAL REPORT 2012> 122 |
by a group credit control department for all entities included in the Wholesale
distribution segment. Credit risk which originates within the Retail segment is locally
managed by the companies included in the Retail segment.
Losses on receivables are recorded in the financial statements if there are indicators
that a specific risk exists or as soon as risks of potential insolvency arise, by determining
an adequate accrual for doubtful accounts.
The allowance for doubtful accounts used for the Wholesale segment and in
accordance with the credit policy of the Group is determined by assigning a rating to
customers according to the following categories:
1. “GOOD” (active customers), for which no accrual for doubtful accounts is recorded
for accounts receivable overdue for less than 90 days. Beyond 90 days overdue
a specific accrual is made in accordance with the customer’s credit worthiness
(customers “GOOD UNDER CONTROL”); and
2. “RISK” (no longer active customers), for which the outstanding accounts receivable
are fully provided. The following are examples of events that may fall into the
definition of RISK:
• significant financial difficulties of the customers;
• a material contract violation, such as a general breach or default in paying
interest or principal;
• the customer declares bankruptcy or is subject to other insolvency proceedings;
and
• all cases in which there is documented proof certifying the non-recoverability
of the receivables (i.e., the inability to trace the debtor, seizures).
The Group does not have significant concentrations of credit risk. In any case, there
are proper procedures in place to ensure that the sales of products and services
are made to reliable customers on the basis of their financial position as well as
past experience and other factors. Credit limits are defined according to internal
and external evaluations that are based on thresholds approved by the Board of
Directors.
Moreover, the Group has entered into an agreement with an insurance company
in order to cover the credit risk associated with customers of Luxottica Trading
and Finance Ltd. in those countries where the Group does not have a direct
presence.
c2) With regard to credit risk related to the management of financial resources and cash
availabilities, the risk is managed and monitored by the Group Treasury Department
through financial guidelines to ensure that all the Group subsidiaries maintain relations
with primary bank counterparties. Credit limits with respect to the primary financial
counterparties are based on evaluations and analyses that are implemented by the
Group Treasury Department.
Within the Group there are various shared guidelines governing the relations with the
bank counterparties, and all the companies of the Group comply with the “Financial
Risk Policy” directives.